Elham Hassanzadeh is the author of the book „Iran’s natural gas industry in the post-revolutionary period“, published in October 2014 by the Oxford University Press, preface by Jonathan Stern. ENERGLOBE asked her to introduce her new study to us:
The book on Iran’s natural gas industry aims to address the primary issue of major challenges to substantial development of the natural gas sector in Iran. It engages with the question of why, despite owning the largest gas reserves in the world, Iran has not only failed to play a major role in the international gas trade, but also has turned into a gas importer to fulfill its growing domestic market needs. The book tries to illuminate the prospect for changes in the current status of the industry and to examine the potential that any future development can offer to domestic, as well as regional and international gas markets. To this end, it aims to present a realistic picture of the industry and its potential, using the lenses of optimistic and pessimistic scenarios up to 2020 and beyond.
This is the first book in any languages which is entirely devoted to the study of Iran’s natural gas industry covering both domestic market and export potentials since 1979 Revolution. It is also the first academic book on the Iranian oil and gas sector which has adopted a unique methodological approach, presenting a multidisciplinary study of various historical, political, legal and economic variables affecting the development of the petroleum sector. This approach had been taken to permit readers to comprehend the current state and future development of the gas industry by reading a single comprehensive analytical work rather than scattered, less detailed sources.
In this book, many factors were identified as major obstacles to the substantial development of the Iranian gas sector, the most important of which were: US and international sanctions; politicization of the petroleum industry; lack of an attractive contractual and investment framework; energy subsidies and a growing domestic market; and last but not least the natural gas allocation complexities.
US and international sanctions have been the most important factor underlying Iran’s failure to substantially develop its gas resources. They have severely limited Iran’s access to foreign investment and technologies, causing almost all natural gas projects to be cancelled, abandoned or substantially delayed. Therefore, any major development in the natural gas projects, particularly in the export side, to a large extent, depends on the east or removal of sanctions, the failure of which will not only further intensify international pressure, but also could widen the gap between the production capacity and domestic demand, causing increase in gas import from Turkmenistan and threatening current export capacity.
Politicization of the petroleum industry is another major challenge in the development and efficient management of the sector. This book offers a new perspective on the available literature on the Iranian petroleum sector, analysing the sector within the context of the country’s contemporary political structure and historical events which have inevitably impacted the decision-making process in the country’s oil and gas sector. Historical concerns relating to the exploitive and manipulative nature of foreign intervention in the petroleum industry have made it a profoundly sensitive sector. The resulting mistrust and suspicion have led to multiple bodies of power exerting influence on the policy-making process causing politics to far outweigh economic considerations.
The unattractive foreign investment regime in Iran’s upstream oil and gas sector for long has been identified as one of the major deterrents for foreign investors’ participation in the development of the sector. Starting from a total ban on foreign investment as a result of the Revolution to limited attraction and promotion of foreign investment through buybacks, the country has gone through a transition period where today it is getting prepared to launch the allegedly most attractive upstream contractual regime ever offered in the oil and gas-rich Middle East. The new contractual framework, known as Iran Petroleum Contracts (IPCs), have gone as far as offering reserves booking under special circumstances and joint management of projects with IOCs. While these new contractual and regulatory improvements could be considered as positive signs, one may remain critical of weak governance institutions and systematic corruption in Iran which could pose serious risks to the participation of foreign investors in the development of oil and gas projects.
The issue of energy subsidies and their impact on growing domestic market has long been discussed as a major economic obstacle in freeing enough gas for other markets including export and reinjection and providing capital investment for the development of gas infrastructure. Iran’s 2010 initiative to reform energy subsidies, despite its initial success, was hard hit as a result of the intensification of international sanctions in 2012 and the government’s mismanagement in the economic reform process, causing uncontrollable inflation rate and devaluation of the national currency. Although the objectives of the reform have never been completely fulfilled, its impact in the long run can be positive if Iran succeeds to improve its political relations with the international community. In this situation, the increase in prices will have real significance and will not devaluate in the face of rising inflation and adverse exchange rate movements. It will also mean access to international technologies and investment which can significantly enhance the efficiency of energy consumption in Iran’s industrial and power sectors by upgrading old capital stock.
Last but not least is the prolong debate between the Iranian authorities over allocation of gas resources to domestic or export markets which have offered serious challenges to Iran’s success to substantially increase its share in regional and international gas trade. The issue of optimal allocation of gas resources has particularly gained importance in the light of the country’s limited production capacity and growing domestic market needs and oilfields reinjection requirements, creating competition between domestic markets, export and reinjection.
Given all these major challenges, Iran’s natural gas future involves many uncertainties. An important part of an immediate answer to the question of whether Iran can further substantially develop its natural gas resources depends on the country’s relations with the international community, the prospect for which have been promising since the election of President Rouhani. With the required investment and technologies, Iran can add up around 50-80 bcm to its production capacity, producing a total volume of 210-240 by 2020. This can be achieved through bringing on stream phases 12 and 15-18 of South Pars, the development of which has been given priority by Minister Zanganeh. Beyond 2020, depending on how fast Iran can develop the remaining nine phases of South Pars and other major discovered fields, the country’s total capacity could reach around 350 bcm/year by 2030.
Up to 2020, despite prices increase, the domestic gas consumption is expected to grow, mainly driven by the government’s domestic network expansion and gas for oil substitution policies. However, as the new government for the first time has adopted and seriously implemented energy saving and conservation policies, and as there are possibilities that by removal of sanctions Iran can upgrade its outdated capital stock, the domestic market consumption is expected to reach 200-220 bcm in 2020 and continue to fluctuate around the same range beyond 2020.
For the natural gas export, Iran is likely to focus more on regional markets for which it has already contracted 30-40 bcm with some of its neighbors. However, as gas export requires extensive infrastructure, huge sources of investment and long-term contracts, the time frame for substantial export of gas to international markets, for example to Europe, will certainly go beyond 2020. Even then, gas export through pipeline is likely to be given priority over LNG export due to serious commercial and technical complexities that the construction and operation of LNG plants may pose to the government.
To conclude, Iran may be able to play a greater role in international gas trade in the next 10-15 years in the light of current optimism about reaching a final agreement with the international community and subsequent ease or removal of sanctions. The country’s internal political constraints and domestic market needs however can seriously impact Iran’s ability to become a major exporter of gas to international markets prior to 2030.